Veriton Investment

Wall Street Bets on Tariff Refunds If Court Rules Against Trump

(Bloomberg) -- Wall Street banks are arranging bets on President Donald Trump’s tariffs being struck down by the Supreme Court — long-shot trades that could pay off handsomely for hedge funds betting against the legality of the administration’s flagship policy.

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Jefferies Financial Group Inc. and Oppenheimer & Co. are among firms brokering the deals, matching investors with companies that have paid tariffs to import goods into the US, according to people with knowledge of the matter and correspondence seen by Bloomberg News.

Representatives for Jefferies and Oppenheimer declined to comment.

In the trades, the importing companies essentially sell to investors any future rights to claim refunds on their tariff bills, which could come if the nation’s top court sides with an ongoing legal challenge to Trump’s tariffs. The companies sell at a discount to their expected refunds, meaning investors would reap the upside in a ruling favorable to them. The banks arranging the deals take a cut.

The bets add to the existing Wall Street ecosystem that’s speculating on the Trump administration’s sweeping policy changes, in areas including trade, cryptocurrencies, energy and foreign policy. The sensitive deals hinge on the success of complex legal arguments, but could lead to bumper payouts for those placing the bets.

For example, a hedge fund might pay somewhere between 20 to 40 cents for each dollar of claims they could get back in refunds, giving them an upside of several times their bet, according to the correspondence and some of the people, who asked not to be identified discussing potential terms. Most of the trades range in size from $2 million to $20 million, with few over $100 million, one of the people said.

“The solution provides the ability to de-risk the outcome and receive a guaranteed payment now, without having to wait for final court rulings,” according to a pitch by Oppenheimer seen by Bloomberg. In it, the firm said that its special-assets team has arranged, since 2021, more than $1.6 billion of similar trades over US-China tariffs that predate Trump’s latest wave of levies.

The Supreme Court on Nov. 5 is set to hear arguments against tariffs imposed under Trump’s International Economic Emergency Powers Act. If his country-based tariffs are ruled illegal, the government could owe back to companies the bulk of the net $195 billion in customs revenue resulting from the tariff hikes in fiscal 2025.

Two lower courts have already ruled that Trump wasn’t permitted to impose tariffs under the IEEPA. The Supreme Court could issue its decision by the end of the year or in the first quarter of 2026. Trump has coveted revenue from the tariffs, saying they’ve made the US “very rich again” and arguing it would be a disaster for the country if Treasury is forced to return the funds.

Investment banks have been asking customs brokers in several US states to recommend the deals to clients paying the tariffs, according to some of the people. According to one customs broker, who asked not to be identified discussing private talks, some investors are actively pursuing buying refund claims from importers that are hurting for cash.

Cantor Fitzgerald LP, the investment bank overseen by the sons of Commerce Secretary Howard Lutnick, also considered arranging such deals earlier this year, but shut them down before executing any transactions, Bloomberg reported in August.

If the Supreme Court strikes down the tariffs, the process of recovering tariffs is unlikely to be simple even for the importers themselves — much less for the firms that have bought the refund rights.

For example, it would be particularly complicated for importers using commercial couriers such as FedEx Corp. and United Parcel Service Inc. to handle paperwork and tariff payments on their behalf. US Customs and Border Protection issues refunds only to the importer of record — the parcel handler, in this case, and not necessarily the ultimate recipient of the imported goods — and it’s likely that paperwork for every single shipment would be required for repayment.